Asia DRAM Report: Rambus, DDR Chip Prices Collapsing
By DERMOT DOHERTY OF DOW JONES NEWSWIRES
May 14, 2001
TAIPEI -- With spot prices of dynamic random access memory (DRAM) chips hovering around historic lows, chipmakers are increasingly turning to next-generation technologies to boost their sagging bottom lines.
However, the scramble to cash in on the healthy profit margins on Double-Data Rate (DDR) and Rambus DRAM chips is causing their prices to collapse, as supply outpaces demand and PC sales remain sluggish, semiconductor analysts say.
"Chipmakers are producing the new technologies in the hope of making money but with everyone producing them, the price premium is fast disappearing," said Andrew Norwood, senior semiconductor analyst at Gartner Dataquest in London. "The problem is not enough PC makers are asking for DDR and Rambus in volume yet."
As a result, the price of a 128MB DDR chip has plunged to US$5 from around US$15 in February, while a 128MB Rambus chip has tumbled to US$11 from around US$18-US$20 in January.
In comparison, standard 128MB DRAM chips are trading at US$3.60 apiece.
Rambus chips - named after Rambus Inc. (RMBS), the U.S. company that developed the technology - allow data to be read at more than twice the speed of conventional synchronous DRAM chips, but are more expensive to manufacture.
DDR chips are also significantly faster than standard DRAMs, but have similar manufacturing costs, and the conversion of existing DRAM manufacturing lines to DDR production is relatively straightforward.
Thus far, the two high-performance chips remain niche products in the overall memory chip market, accounting for an estimated 20% of total DRAM output this year.
But a slew of announcements by leading chipmakers in recent months signaled that output of Rambus and especially DDR should rise sharply during the second half of the year, putting pressure on next-generation chip prices - particularly those of DDR.
Jonathan Dutton, semiconductor analyst at UBS Warburg in Seoul, believes "DDR availability is going to increase in the fourth quarter and it will become a commodity with no premium" over standard DRAM chips.
Moreover, both Intel Corp. (INTC) and VIA Technologies Inc. (Q.VIA) are expected to launch DDR-compatible chipsets during the second half of the year, moves that should foster greater acceptance and spur production of the new standard, analysts say.
Rambus prices are also expected to continue to slide in coming months, given the current dismal state of the PC market, albeit to a lesser extent.
"Rambus is a smaller market and it's segmented at the high-end of the PC sector, which has seen less pricing pressure," said Dan Heyler, head of regional semiconductor research at Merrill Lynch in Hong Kong. "But we (still) expect pressure in all segments going forward."
No Clear Winner Yet, But DDR Gaining Upper Hand
As yet, no clear winner has emerged as the next industry standard, but the consensus among semiconductor experts is that things are swinging in DDR's favor.
DDR has largely been championed by chip giants Micron Technology Inc. (MU), Hynix Semiconductor Inc. (Q.HEL) and Infineon Technologies AG (G.IFT), while Samsung Electronics Co. (Q.SSE) and Toshiba Corp. (J.TOS) have mainly thrown their weight behind Rambus.
"Rambus is ahead in the amount of product being shipped, but DDR is coming up fast and has a lot of momentum," said Gartner Dataquest's Norwood, who nevertheless believes it's uncertain which product will eventually come out on top.
In April, U.S. chip giant Micron said it plans to crank up production of the high-performance chip to 30% of total output by the fourth quarter of 2001.
And South Korea's Hynix, which recently signed a deal to supply DDR chips to PC giants Compaq Computer Corp. (CPQ) and Hewlett-Packard Co. (HWP), has said it wants to take a 21% share of the global DDR market in 2001 with sales of US$380 million.
"There's much broader support for DDR," said Bhavin Shah, head of regional technology research at CS First Boston in Hong Kong. "Rambus will still have a role in the high-end market, but DDR will end up taking the value and mainstream markets."
Rambus also has to overcome its image problems, and its demands for patent royalties have made many in the PC industry bristle.
Intel, the world's largest chipmaker, began touting the high-performance chip in 1997 and even designed its Pentium 4 microprocessor around the Rambus standard.
However, early Rambus backers - including chipmakers and motherboard manufacturers - were burned because of production glitches and Intel's own failure to quickly come with an effective chipset for Rambus. Most of all, the high-cost of the chip ran contrary to the trend toward lower PC prices.
Then, Rambus Inc. itself became embroiled in legal disputes with Infineon, Micron and Hynix over royalties for synchronous DRAM and DDR technology patents.
Earlier this month, a U.S. court found that Rambus committed fraud in obtaining and seeking to enforce the patents and awarded Infineon US$3.5 million in punitive damages.
Although appeals and further legal battles lie ahead, some analysts say the ruling could further reinforce a belief in the DRAM community that Rambus is not the way forward. It also augurs well for Micron and Hynix in their own legal tussles.
Still, with Intel in its corner, Rambus has a heavyweight backer.
The U.S. chip company accounts for around 80% of the global microprocessor market and is aggressively marketing its new Pentium 4 microprocessor, which uses Rambus memory.
In February, Intel also entered into a strategic alliance with Samsung to expand the market for Rambus.
The Korean company garnered a roughly 50% share of the market for the high-performance chip last year. In March, it also announced it would boost its Rambus output to 10 million units by the fourth quarter from 7 million units currently.
The other major Rambus manufacturer, Japan's Toshiba Corp. (J.TOS), plans to ramp up output to 62% of its total production by September.
But whether such efforts are enough to overcome the growing shift towards DDR - and, above all, narrow the cost disparity between the two standards - remains to be seen.
One thing's for sure, though. Both technologies are unlikely to co-exist in the broader PC market over the long term.
"DRAM is a commodity and PC manufacturers don't want to be buying different flavors of DRAM because they cease to enjoy the benefits of scale," said Norwood at Gartner Dataquest.
"Over the next eighteen months, one of the technologies will win out and whichever loses will have very niche applications, but won't be used in the mainstream PC space." |
